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7 ways to use an allowance to teach your kids about money

Nearly all Canadians (99 per cent) feel it’s important to develop good financial habits early in life — yet only 18 per cent of parents spend a lot of time discussing money and financial matters with their children, according to BMO research.
Talking to your kids about what things cost — and how you pay for them — can help them understand that it takes hard work to earn money. If you’ve been looking for a hands-on way to teach your children the concepts of saving, earning and spending money, the following seven tips can help you turn a standard allowance into an invaluable educational tool: 

  1. Start with the basics when they’re young: Generally, kids should be old enough to understand what money is and how it’s used before they receive an allowance. But don’t be afraid to start early: Consider giving a quarter or dollar to a child as young as three or four. Show them how to save their coins in a piggy bank, help them find something small they want to save for, and then help them purchase that item once they’ve saved enough. Check out these 5 fun ways to get your preschoolers interested in money.
  2. Determine how they’ll earn the allowance: It’s up to you to decide what’s best for your family. Some parents tie their children’s allowance to a specific set of chores done weekly. Others feel that weekly chores are part of being a member of the family, and only pay an allowance for tasks that go above and beyond. It’s entirely up to you. Just set the parameters and stay consistent so that your kids know what’s expected of them.
    As your children grow older, they may have larger purchases they want to make. If this is the case, consider inviting them to identify problem areas around the house, propose solutions and then negotiate the cost of fixing them in exchange for an allowance or extra spending money.
  3. Agree on an amount: Not sure how much to shell out? A general rule of thumb is to pay your child a dollar allowance equal to their age — for example, $8 a week for an 8-year-old. However, you may want to pay older children more if you plan to have them start footing the bill for things like haircuts and car insurance. Be clear about what the allowance covers, so they’re clear on how to budget.
  4. Support solid saving habits: Help your children open a savings account with online access, which will help them see how their savings progress. If you bank with BMO, take advantage of our bank account options for kids under 12, teenagers, college and university students, and graduates — with no monthly fees.
  5. Encourage sensible spending: Help your child distribute their earnings — a portion to their savings account and a portion for spending. Additionally, consider having them set aside a portion for charity as a way to teach them the importance of giving back. The Canada Revenue Agency’s advanced charity listing search tool can help your child find a charity to support, based on causes they care about.
  6. Help with money management: Don’t shy away from setting allowance spending limits, Yahoo Finance Canada says, but make sure your child understands the rules. To show your children how they can save to meet a long-term goal, help them identify a pricey item they really want, and teach them to estimate how long it will take them to save for it, given the amount of their allowance that’s allotted for spending.
  7. Realize you may need to adjust along the way: You may find that your allowance system ages as your children do, so feel free to make changes along the way. If kids ask for a raise, ask how much they think is fair, and what responsibilities could be added to justify the new, higher amount.

Looking for more resources? Wednesday, April 20, 2016 is BMO’s Talk With Our Kids About Money Day in partnership with CFEE. To celebrate, we’re sharing fun, easy, and engaging activities at

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